Big Printin’ – $NKE Swoosh?

by Dan June 15, 2016 3:58 pm • Big Printin'

U.S. stocks large cap stocks are the best performing in the developed world, with the S&P 500 (SPX) up nearly 1.5% in 2016, and down about 2% from its year ago all time highs, vs the German DAX down 11% on the year, and down about 19% from its 52 week highs, and the Nikkei in Japan which is down 16% on the year, and down about 20% from its 52 week highs. Don’t even get me started on emerging markets (ex Brazil & Russia which both got destroyed last year with Oil’s collapse and have rebounded this year), but the largest EM equity market, China’s Shanghai Composite is down 18% on the year, and down 42% from their year ago 52 week highs.

The main point here is this most equity markets act poorly, while the U.S. acts the best. The reasons for the relative out-performance lies more in the move off of crash lows for energy and materials stocks and defensive sectors like U.S. Telcos, Utilities and Consumer staples, and less about growth.

Growth at a reasonable price was a thing during the last leg of the bull market, but it ended in 2015.  The list of lost bull market leaders is extensive since the end of 2014, Apple (AAPL), Intel (INTC), Disney (DIS), Netflix (NFLX), almost every retailer except The Home Depot (HD), Under Armour (UA), Starbucks (SBUX), and now Nike (NKE) anther former teflon stock.

There was an interesting options trade in NKE today that caught my eye. And it got me looking at the stock. When NKE was $55 there was an opening seller of 6250 of the Oct 50 puts at $1.64.  If these puts in fact were sold outright (meaning not against a short position setting a buy stop, or on a delta neutral basis, which it does not appear they were), then the trader is drawing a line in the sand just below $50, a level where they are willing to be put the stock on Oct expiration if the stock is $50 or below. If the stock were above $50, then the trader would take in the $1.64 in premium, or $1.025 million.

The break-even level on the puts at $48.35 (the put strike less the premium received) would be down about 30% from NKE’s all time highs made in late December.

Shares of NKE are down 13% on the year, and down about 20% from its 52 week highs. Frankly, the technical set up looks atrocious. The stock is in a well defined downtrend (aside from the rally into their fQ3 results in late March, which was the start of the latest leg lower).  The stock has now made a series of lower lows, and has little support to the nice round number of $50:

[caption id="attachment_64369" align="aligncenter" width="600"]From Bloomberg From Bloomberg[/caption]

Taking a slightly longer term view, NKE is now threatening the uptrend that has been in place since late 2012. This looks precarious at best:

[caption id="attachment_64370" align="aligncenter" width="600"]From Bloomberg From Bloomberg[/caption]

The next identifiable catalyst for NKE will be their fiscal Q4 results due on June 28th. The options market is implying about a 6% move in either direction between now and the close on July 1st, much of that I suspect is the implied one day earnings move. On average over the last 4 qtrs NKE has moved just a tad below 5% in each instance.  The 10 year average post earnings one day move is also about 5%.

We will be sure to take a closer look prior to earnings. The current Euro 2016 soccer tournament, and the upcoming Olympics in Rio in August could serve as a catalyst for guidance for the current quarter.

I suspect a move back towards its 50 day moving average near $57 could provide a great short entry into the print. Stay Tuned.